Looking for investing ideas? Here’s your weekly digest of the Globe’s latest insights and analysis from the pros, stock tips, portfolio strategies plus what investors need to know for the week ahead.
A case study in how not to invest in bank stocks
BK and BK.PR.A are two different classes of shares issued by Canadian Banc Corp., an investment vehicle known as a “split share” corporation, John Heinzl writes in response to a reader question. Canadian Banc Corp. holds a portfolio of the six biggest Canadian bank stocks, and while BK and BK.PR.A both provide exposure to those underlying stocks, they do so in different ways and with dramatically different results.
BK.PR.A, the preferred shares, are relatively stable. They pay a fairly secure dividend that is funded by the dividends from those shares. BK, the class A shares, are entitled to all of the value in Canadian Banc Corp.’s bank stock portfolio after the preferreds’ dividend and fixed capital requirements are satisfied.
Many split share corporations resort to selling stocks in the underlying portfolio to generate cash required to pay dividends on their class A shares, said James Hymas, president of Hymas Investment Management. “It is my belief that, if people understood class A split shares, they wouldn’t buy them.” You can read more here.
More from John Heinzl: Bank of Nova Scotia, Torstar and more investing stars and dogs for the week
Rosenberg: This is when the stock market rally is likely to unravel – and it’s not going to be pretty
What the market is telling us now, in a rotation away from the megacap “stay at home” growth stocks toward reopening/recovery value stocks, is that a vaccine is close, that we are then going to be in for a huge V-shaped recovery, David Rosenberg writes. Make no mistake, this is what is priced in right here and right now and, in terms of timing, I sense Mr. Market is thinking by the fall, everything is going to return to normal.
That’s not my view, and while I am not an infectious-disease expert, I do know a thing or two about assessing probabilities. A vaccine has never been developed, ever, in the time frame the stock market has priced in. From the people I talk to, we are not looking at anything being successfully tested and developed before early spring or summer of 2021. If we go through the summer, and by Labour Day we don’t have a vaccine developed and ready for production and distribution for 2021, this rally is going to be in some serious trouble.
Read more: Here’s the key to constructing a portfolio for what comes next
Is it a good move to buy stocks with borrowed money?
Leveraging, as borrowing to invest is known, is about harnessing risk to improve your returns, Rob Carrick writes in response to a reader question. Using borrowed money helps magnify gains over what you’d make if you used only your own money, but also your losses.
If it takes longer to revive the economy than investors expect because the virus persists, we could see another big downturn in stocks. The trap in leveraging is losing your nerve and selling your stocks for less than you paid.
If you’re financially secure, comfortable with market ups and downs and can afford to be patient, then using a home equity line of credit to buy stocks now might work out. But make sure to have an exit strategy – a plan to sell when your portfolio of borrowed stocks reaches a certain value.
More from Rob Carrick: Why the people rushing to get life insurance now are doing a smart thing
Laurentian Bank slashes dividend by 40 per cent as profits tumble
Laurentian Bank of Canada slashed its dividend by 40 per cent on Friday after a sharp drop in profit, becoming the first large Canadian bank to cut its payout in nearly 30 years, Mark Rendell writes. The Montreal-based bank came into the COVID-19 crisis on a back foot, having struggled in recent years with wage disputes and a challenging transition toward digital banking that has seen it shutter many branches and phase out teller services. The Big Six Canadian banks also reported major profit declines for the second quarter, but held their dividends steady.
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A 10-point checklist of things you should be doing to guard your financial well-being
In the 10th and final instalment of his pandemic personal finance update, Rob Carrick laid out 10 things Canadians should have done by now to protect and improve their money situation. For investors, these include grading your financial adviser. What value did your planner or adviser bring to you and your family in the financial upheaval caused by the pandemic? For the non-difference makers, figure out what’s lacking and either ask for it or seek it elsewhere.
What investors need to know for the week ahead
In the week ahead , the Bank of Canada is scheduled to make its latest rate announcement on Wednesday, widely expected to hold at 0.25 per cent, and Tiff Macklem takes over as governor. Economic data on tap include Canada’s jobs numbers for May on Friday, plus: Canadian auto sales for May (Monday); U.S. factory orders for April (Wednesday); Canada’s merchandise trade deficit and U.S. goods and services trade deficit for April (Thursday).
Companies releasing their latest financial results include Canada Goose, Saputo, Cineplex, AMC Entertainment, Boston Pizza Royalties Income Fund, Freshii, Gap, Groupon, Tiffany and American Eagle Outfitters.
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- Citi’s top stock picks for risk-adjusted dividend yield
- Jefferies’ 22 highest conviction U.S. stock picks